Motown Going Down?

Detroit just filed for bankruptcy. Who knew?

When I’m looking into a new credit, the first place I look in the financial statements is the auditor’s opinion. Auditing is an under-appreciated art. You have to be detective and diplomat. It can be incredibly tedious until it’s not. And sometimes the audit reveals some real gems.

Like the school district in Maine that couldn’t find $230 thousand in cash. Or the New Jersey law that requires their cities and towns to report their finances contrary to generally accepted principles. And then there’s Detroit.

Their audit was audacious: 72 operational comments; 23 repeat comments, including a physical asset control system that didn’t record when something was sold. So any sale—a car, a computer—was double-counted in the books: as cash, and as an asset. The auditors found at least $3 million in double-counting.

So, yes, Detroit has economic problems and pension problems and crime problems and other issues. But at the end of the day, if you don’t have clean financials—if you don’t know where your money is—you may not have enough to pay your bills.

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Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. -
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The Global Market Update is curated by Douglas Tengdin, CFA an employee of Charter Trust Company. The opinions expressed herein are those of the author and do not necessarily represent the views of Charter Trust Company.
Investments may involve investment risk, including the possible loss of value.